SPLASH PALACE BUSINESS CASE & IMPACT ASSESSMENT
BUSINESS CASE EVALUATION FOR ESTABLISHING A FITNESS GYM AT SPLASH PALACE AND THE ANTICIPATED IMPACT ON EXISTING PROVIDERS
APRIL 2016
Impact Consulting & Accounting | www.impactconsulting.co.nz | April 2016 1
Contact Details: Impact Consulting & Accounting Ltd (03) 477 8777 www.impactconsulting.co.nz [email protected]
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1 Executive Summary
Invercargill City Council has a number of aspirational goals for their community as a whole. Two core objectives of a healthy vibrant community, are more people being active, with facilities that meet the needs of the community.
With a view towards developing and maintain facilities infrastructure as economically as possible, this report addresses the viability of including a fitness gym as part of a wider pool foyer and changing room upgrade, and assesses the impact on existing fitness gym providers. The pool gym will have a focus on entry level programmes, rather than the level of specialist services offered by existing facilities.
The brief given for this project requested an impartial assessment of the impact of the proposed gym facility on existing business.
BUSINESS CASE From a financial and demand perspective this project is deemed viable.
Without the proposed gym, the much needed redevelopment pool changing and reception facilities would cost $1.34M and would be entirely rate payer funded.
Inclusion of the proposed gym would increase the project capital cost to $2.14M and is projected to enable the project as a whole to be rates-neutral or self-funding.
Research indicates there is sufficient demand to ensure that the proposed facility will cover operational costs, as well as the debt servicing for the redevelopment.
Research identified that although new gyms have opened in Invercargill since the original project was submitted to Council, there is still significant demand for a facility of this nature from people who do not currently attend a gym. The proposed gym will act as a gateway facility for the industry as a whole. As the facility will only offer swim + gym memberships, becoming a member of the proposed pool gym would only make financial sense for someone who already swims.
IMPACT ON EXISTING GYMS As part of this project, previous reports and existing materials were reviewed. Detailed submissions from owners of existing gym facilities included in the original project report were reviewed. These submissions are considered to be complete and well considered and have helped to inform the research undertaken. These owners were not directly contacted as part of this particular investigation, due to the project brief requesting an impartial assessment of impact.
An impartial research outcome was deemed to be best achieved via analysis of the existing Splash Palace membership, paired with an on-site survey to give an independent measure of demand, current gym attendance and the resulting impact.
Research based membership projections indicate both direct and indirect impacts on existing gyms. The collective direct impact on existing gyms in Invercargill is projected to be 189 members of existing facilities moving to the new gym. This represents 6.3% of total membership over all facilities.
Research projections indicate that only 47% of new demand (from people who do not currently go to gyms) could be realistically cater for. Meaning a net gain for the industry as a whole.
Establishment of a referral system to redirect surplus demand and people with specialist training requirements to existing providers will lift the overall level of gym activity in the city.
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RESULTS SUMMARY
The research and report is broken into several segments in order to address key questions in a robust and logical manner. Key findings in each segment are briefly noted below, please see relevant report sections, results summary and recommendations for more details.
Note: As with any projections these figures have been calculated with the best available information at time of publication and should be evaluated in conjunction with advice from the relevant Invercargill City Council and Venture Southland teams. Site based research is considered robust with 742 responses in total a 95% confidence level and margin of error of +/- 6%.
THE FINDINGS OF THIS INVESTIGATION INDICATED THE FOLLOWING:
Section 4: Market Position and Pricing
1) The proposed pricing is deemed to be fair based on current market rates, will not undercut existing providers. The projected membership levels are considered to be achievable in line with national averages for similar facilities.
Section 5: Research
1) The site is considered accessible to all parts of Invercargill and by people of all income levels. 2) The pool plays a role in drawing visitors to the city, with 26% of members coming from outside the city, thus the proposed facility will service a wider catchment than existing gyms. 3) The pool has strong connections with many specific communities of need and will assist in meeting their requirements, including injury rehabilitation services, elderly care services and medical organisations. 4) There is an unmet demand. 5) The proposed gym will act as a gateway facility, appealing to people who don’t currently go to a gym. 6) The required number of full members to make the facility financially sustainable is considered achievable. 7) In the short term there will be a direct impact on existing gyms with an anticipated movement of 6.3% of total members across all providers to the new facility. 8) In the medium to long-term the proposed facility is projected to have a net benefit for the growth of the local fitness industry.
Section 6: Gym Capacity
1) The projected membership can be considered realistic based on anticipated demand and the capacity of the proposed gym. 2) Research indicates that the proposed gym will not have capacity to cater for the projected total demand. This will further enhance the ability of the gym to act as a gateway facility. With a referral system in place to redirect surplus demand, this will benefit the local fitness industry as a whole.
Section 7: Business Case
1) The proposed facility is projected to be financially sustainable and will significantly enhance the viability of the overall Splash Palace renovations. 2) A first year loss is projected due to equipment purchases. If these were capitalised as part of the construction and fit out, the gym is projected to cover all its own operational costs and the majority of debt servicing requirements for the project as a whole within its first year of operation.
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2 Contents 1 Executive Summary ...... 3 2 Contents ...... 5 3 Introduction ...... 6 3.1 Introduction ...... 6 3.2 Background and need for additional assessment ...... 6 3.3 Project Objectives ...... 7 4 Market Position and Pricing ...... 8 4.1 National Context ...... 8 4.2 Sample of NZ Facilities Membership ...... 8 4.3 Sample of NZ Facilities Membership Pricing ...... 9 4.4 Membership Conditions / Inclusions ...... 9 4.5 Fitness Centre Market Rates ...... 10 4.6 Assessment of proposed pricing comparative to market ...... 10 5 Research ...... 11 5.1 Existing Splash Palace Membership Analysis ...... 11 5.2 Site Based Quantitative Research ...... 15 5.3 Survey Results ...... 15 5.4 Respondent Age Group Breakdown ...... 17 5.5 Fitness Gym Usage Projections ...... 18 5.6 Survey Respondent Membership Interest ...... 19 5.7 Gym Attendance ...... 20 5.8 Increased Activity from People New to Gyms ...... 21 5.9 Impact on Members of Existing Gyms ...... 22 5.10 Impact on Existing Gyms ...... 22 6 Gym Capacity ...... 23 6.1 Capacity ...... 23 6.2 Community Need ...... 24 7 Business Case ...... 26 7.1 Revenue projections ...... 26 7.2 Expenses ...... 26 7.3 Projections ...... 27 7.4 Redevelopment as a whole ...... 28 8 Findings & Recommendations ...... 29 8.1 Findings Summary ...... 29 8.2 Recommendations ...... 31
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3 Introduction
3.1 Introduction The Invercargill City Council has for a number of years been considering the establishment of a fitness gym as part of a wider Splash Palace redevelopment. Consideration of this inclusion has primarily been driven by two key factors:
1. The inclusion of a fitness gym is closely aligned with the Council’s policies in regard to provision of recreation facilities and opportunities for healthy and active lifestyles for the community. Local authority run facilities of this nature exist in many in other parts of NZ.
2. The pool changing room and reception upgrades are needed in order to cater for existing demand, address key issues and help reduce staffing requirements. The projected revenue from a gym facility, while not directly profit generating will significantly reduce the payback period of the facility upgrade as a whole and reduce the potential impact on ratepayers.
This report has been commissioned by Venture Southland on behalf of the Invercargill City Council in order address two key questions posed by Councillors and Rate payers. Firstly, to evaluate the potential impact on existing fitness gyms within the city should the proposed pool fitness gym development proceed. And secondly, to evaluate the robustness of original income projections in relation to demand and current market prices.
3.2 Background and need for additional assessment On June 10, 2015, the Invercargill City Council resolved to proceed with the proposed expansion of the Splash Palace facilities, including a fitness gym. This resolution was passed with the proviso that an independent report was undertaken to establish a business plan for the gym facility and assess the impact (if any) on private fitness gym providers.
The subsequent report1 presented to the Council on 15 September 2015, proved to be a desktop assessment of existing material, with no location specific research, impact assessment, detailed business planning or budgeting. The report draws on national level research and usage data from other centres, however did not substantiate any of the claims or projections in detail or from an Invercargill specific perspective. This left the Council with some unresolved core questions.
The key unresolved core questions were:
1. Will the proposed facility be viable? 2. What will be the impact on private fitness gym operators? (Community specific needs assessment and demand validation)
It is from this context that Impact Consulting were approached to undertake localised quantitative research and review the position of the project from an independent perspective.
1 “Review of the business case for Splash Palace Gym, and its potential impact on local exercise facilities” prepared by Richard Beddie
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3.3 Project Objectives To enable the Invercargill City Council and Stakeholders to make an informed decision based on localised facts, real needs and a realistic evaluation of the uptake, and the wider impact on other fitness gym providers, it was deemed necessary to:
Validate level of demand and need Evaluate the potential impact on existing fitness gym providers Evaluate current pool patronage and demographics Validate the proposed fee structure and develop more robust income projections Establish a more detailed operational budget for the proposed facility to ensure viability and ability to service debt
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4 Market Position and Pricing
4.1 National Context From a national context there are an increasing number of Council run pool facilities in New Zealand which include fitness gyms. This structure would now be considered the norm rather than the exception.
Discussions with pool management teams indicate that the predominant management structure for pool based fitness centres is for them to be either entirely Council run or managed by a private provider under a whole of facility contract.
Private management contracts solely for the fitness gym component of facilities is uncommon. This is partly due to the complexities which come in to play in regard to allocation of expense in regard to changing spaces, cleaning and reception, as well as allocation of revenue for facilities where a gym / swim membership is offered. This does not mean a gym management contract is not possible.
4.2 Sample of NZ Facilities Membership
Table 1
Facility Area Primary Fitness centre Members Catchment (5km) Members per 1000 Stokes Valley Pool Hutt City 8,000 242 30 Riverside Pool Nelson City 15,000 376 25 Riverside Pool Rotorua 15,000 475 32 ASB Aquatic Centre Tasman 18,000 980 54 Genesis Energy Recreation Centre Masterton 19,000 668 35 Naenae Pool Hutt City 25,000 905 36 Stadium 2000 Marlborough 29,000 500 17 Lido Aquatic Centre Palmerston North 68,330 867 13 Waterworld Hamilton 90,390 1,000 11 Pioneer Sport and Rec Centre Christchurch 94,914 1,263 13
Splash Palace Invercargill 51,696
Source: Leisure Check 2013
Based on the membership to catchment ratios in table 1 above, an average ratio of 27 members per 1,000 residents within a 5km primary catchment area can be calculated. Using this ratio as reference point for potential membership for Invercargill based facility would give a projected membership of 1,395 members.
If only looking at the last three facilities in urban areas with a similar catchment to Splash Palace (where other fitness centres are also already established) this would give a ratio of 12.3 members per 1,000 and a projected membership of 637 members.
Given recent growth in the industry it can be assumed that in reality these numbers would now be slightly higher. However, these figures give a basic reference point for potential membership of between 637 and 1,395 members.
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4.3 Sample of NZ Facilities Membership Pricing Comparisons are based on current adult pricing. Table 2 below shows the current adult membership pricing for a sample of other New Zealand based swim / gym facilities.
Table 2 – Current market rates
Current Adult Rates 2016
Facility Casual use x10 visit 1 week (no 3 month 6 month 12 month Equivalent weekly cost per visit concession fixed term) rate of 12 month membership Stokes Valley Pool $18.00 $832.00 $16.00 Riverside Pool $15.00 $100.00 $25.00 $265.00 $436.00 $754.00 $14.50 Rotorua Aquatic Centre $320.00 $598.00 $1,040.00 $20.00 ASB Aquatic Centre $23.95 $325.00 $570.00 $1,037.00 $19.95 Genesis Energy Recreation $307.30 $477.00 $831.50 $15.99 Centre Naenae Pool $18.00 $832.00 $16.00 Stadium 2000 $10.00 $15.00 $780.00 $15.00 Lido Aquatic Centre $22.00 $494.00 $884.00 $17.00 Waterworld $155.00 $17.00 Pioneer Sport & Rec Centre $15.80 $142.20 Average Pricing $16.47 $132.40 $20.24 $304.33 $515.00 $873.81 $16.81
The prices above are higher than those used in the original Splash Palace report, which used a rate of $700 per year for an adult membership.
In order to assess the local market and validate the proposed pricing structure, the current market rates (rather than the original estimate) were used to calculate the indicative rates in Table 3 below. These were used in the market research undertaken during March 2016 at Splash Palace.
Table 3 – Rates used in site based research
Adult Per week Student / Senior Per week 12 Months $ 850.00 $ 16.35 $ 525.00 $ 10.10 6 Months $ 520.00 $ 20.00 $ 320.00 $ 12.31 3 Months $ 300.00 $ 23.08 $ 185.00 $ 14.42 X10 Visit $ 135.00 $ 85.00 Single $ 17.00 $ 12.00
4.4 Membership Conditions / Inclusions Most facilities offer membership to people over the age of 16, with those under this age only admitted when supervised by an instructor. The ASB Aquatic Centre in Richmond and Stadium 2000 in Blenheim offer no fixed term memberships where only a 30 day notice of cancellation is required. The benefits of membership vary by location with most offering access to all pool facilities. Some locations also include access to community fitness group programmes. Rotorua Aquatic Centre charges an additional $49 for 24hr access via a finger print scanner.
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4.5 Fitness Centre Market Rates In order to gain a market rate comparison, investigation was undertaken into the current rates for a basic membership at gyms situated within Invercargill. These were arrogated and averaged to give the rates shown in table 4.
Table 4 – Averaged Market Rates Average weekly rate for 12 Month Membership Average 12 Month Membership Invercargill Based Fitness Centres $14.50 $754
Note: Due to commercial sensitivity for the businesses involved these figures have been arrogated together to give an indicative market rate. It must also be noted that these rates vary by gym and in some cases include benefits such as support from personal trainers and unlimited access to group classes. In other cases these are optional extras at additional cost.
4.6 Assessment of proposed pricing comparative to market When taking into account the adult average of x9 visits to the swimming pool per year2 at $6, the proposed 12 month gym swim membership of $850 is $40 more expensive than the fitness centre market average. In addition to the price difference the centre will not have capacity to offer the same degree of support and additional services and programmes as existing facilities provide.
When looking at the proposed pricing for a 10 visit gym + swim concession card for an adult ($135) and subtracting the cost of a 10 visit swim concession ($51), the proposed pool gym would cost $8.40 per visit. This is equivalent to the average Invercargill market rate for a 10 visit gym concession, with prices for some gyms slightly higher and some slightly lower depending on services included.
The proposed pricing is deemed to be fair, comparative to market rates and would not undercut existing providers. Purchasing a gym + swim membership or concession would only make financial sense for people who already swim.
2 As per Splash Palace Membership analysis – Average pool attendance (section 5.1.6)
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5 Research 5.1 Existing Splash Palace Membership Analysis 5.1.1 Splash Palace Membership Breakdown by Age and Type of Membership Table 5 below shows a breakdown of all active Splash Palace membership and concession card holders for the 2014-15 year.
The strong weighting towards concession cards clearly shows the increasing popularity of these over term based memberships.
Table 5: Splash Palace Membership by Age and Type Age Concession Card Concession Card Membership Total Memberships (x10, x25) (x50, x100) 3, 6, 12 Months Adult / Student / Senior 6,812 (85.3%) 190 (2.4%) 986 (12.3%) 7,988 (100%) (73% of total memberships) Child 2,400 (81%) 442 (15%) 126 (4%) 2,968 (100%) (37% of total memberships) Total 9,212 632 1,112 10,956 5.1.2 Splash Palace Pool Admissions Breakdown Table 6 shows that the 11,000 active membership / concession card holders come to the pool on average around 10 times per year (105,000 admissions). Once regular pool users are accounted for, this means that a large proportion of other members hold partially used concession cards or have brought a new card rather than topping up their existing one.
28% of total pool admissions are 18 years and older, including adults, students and seniors 25% of total pool admissions are spectators 61% of all adult admissions (excluding spectators) are via a membership or concession card
Table 6 : Splash Palace Pool Admissions Breakdown Number Adult / Student / Senior Child / Preschool Spectators School / Club / Lesson Total Pool Admissions 400,000 28% (111,000) 25% (100,000) 25% (98,000) 22% (91,000) Membership Cards 105,000 65% (68,000) 35% (37,000) Individual Pay on Entry 106,000 41% (43,500) 59% (62,500) Other – Spectator, 189,000 School, Club, Lessons * Note: Rounded figures are use in this table based of entries July 2014 – June 2015. Numbers represent individual admissions / visits, not unique visitors, as such repeat visitors will be counted multiple times.
5.1.3 Splash Place Active Members / Concession Card Holders by Location Table 7 shows a breakdown of Splash Palace’s membership by location.
26% of Splash Palace members live outside of Invercargill and therefore are much less likely to attend an existing gym. This finding supports the theory that the proposed gym will appeal to a wider market than existing facilities.
Active Memberships Number Percentage Table 7: Active Members and Concession Card Invercargill (within ICC boundaries) 6,476 71% Holders by Location Outside Invercargill (Southland District plus other towns or cities) 2,351 26% Organisations 296 3% Total 9,121 100%
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5.1.4 Splash Palace Active Member / Concession Card Holders Addresses by Suburb & Statistics NZ Median Personal Income Bracket 2013 Census Table 8 shows a breakdown of Active Splash Palace membership and concession card holders by suburb. These are then categorised and colour coded by the Median Personal Income Bracket that they fall into based on Statistics NZ 2013 Census data. The map shows Median Personal Income Brackets across the city for each of the Statistics NZ mesh block data set areas – the lighter the colour the lower, the lower the median personal income of those who reside in this area.
The table shows a relatively balanced distribution of membership across the city and over multiple income brackets. This indicates that the pool is an accessible facility both in regard to pricing and location. The location of the proposed gym can be considered to serve the Invercargill City community as a whole.
Table 8: Membership by Suburb Suburb Number Appleby 335 City Centre 188 Georgetown 207 Kew 93 Strathern 435 West Invercargill 25 Sub total 1,283 Clifton 85 Glengarry 274 Heidelberg 267 Kingswell 240 Newfield 236 Rockdale 52 Waverly 205 Sub total 1,359 Bluff 27 Grasmere 295 Hawthorndale 172 Prestonville 42 Richmond 512 Tisbury 11 Turnbull Thomson Park 79 Waikiwi 484 Windsor 701 Sub total 2,323 Ascot 15 Avenal 150 Gladstone 511 Queens Park 25 Waihopai 50 Makarewa 26 Sub total 777 Hargest 154 Otarara 324 Rosedale 256 Sub total 734 Total 6,476
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5.1.5 Membership / Concession Card Holders Registered to Organisations Table 9 shows a breakdown of the types of organisations who currently have pool memberships or concession cards registered under their organisations address. In many cases these are green prescription patient memberships which they have setup or memberships where active rehab is undertaken with physio or medical staff accompaniment for initial sessions. This total includes seven different physio practices, Southland District Hospital, medical centres and a couple of rest homes.
Table 9: Registered Organisations as users by type Other Organisations Number Physio Practices 127 PO Box / Business 109 Health / Medical Practices 26 Youth / Education Organisations 17 Sport Organisations 10 Existing Fitness Gyms 5 Total 294
The number of health and rehab organisations who currently hold memberships with Splash Palace indicates that the pool has strong connections with many providers in this sector. From this perspective they are uniquely placed to provide additional services to this sector.
In the 2014-15 year 171 people held green prescription concession cards, on average the pool receives 30 visits per month by people holding a green prescription concession cards.
5.1.6 Average Pool Attendance The table below shows average visits per year by Splash Palace members and concession card holders of each age group.
Pool attendance using a concession card is by seniors is significantly greater than the general population. When taking into account only those 18 years and above (Adults, Students and Seniors) this shows an average of 9 pool visits per year by people holding membership or concession cards.
Table 10: Average Visits per year by membership Age Group Card Admissions Members with cards Average Visits Per Year Adults 36,542 5,572 7 Students 3,496 1,444 2 Seniors 27,812 923 30
Total Adults 67,850 7,939 9 Children 36,696 2,835 13 Clubs with concession cards 10,342 181 57
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5.1.7 Unique Adult Pool Admissions Assuming an average of 9 visits per year across the entire adult population gives an estimated total of 20,509 unique adult visitors per year.
Table 11: Unique Adult Pool Admissions (estimated) Age Group Card Admissions Pay on Entry Total Adults 36,542 37,515 74,057 Students 3,496 3,137 6,633 Seniors 27,812 2,763 30,575 Adult Spectators (Assumes 75% of 97,754 spectators are adult) 73,315 Total Adult Admissions 184,580 Unique Adult Visitors 20,509
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5.2 Site Based Quantitative Research In order to assess the potential impact on other fitness centre operators, an independent measure of anticipated demand was needed. As current providers have a vested interest in focussing on the potential impact on their businesses, this question was approached via a site based iPad survey at Splash Palace.
This survey sought to evaluate the following factors:
1. Are regular pool users currently members of existing gym facilities? 2. What is the anticipated usage of the proposed fitness gym facility? 3. Would potential users purchase memberships at a price point comparative to other facilities elsewhere in NZ? 4. How would the proposed facility impact their current gym attendance? 5. How old are potential users? What proportion would qualify for student or senior memberships?
This information combined with existing pool facility usage, demographic and membership data enabled location specific projections to be made for the proposed facility. Including an independent assessment of the anticipated impact on existing businesses.
The survey ran for 2.5 weeks from 3 March – 20th March 2016.
5.3 Survey Results Total Responses The site based survey gained a total of 742 responses, of which 732 were complete responses.
Youth Responses 381 of these (52%) come from respondents under the age of 16, who would not normally qualify for fitness gym membership3. 1. In the case of Invercargill 20% of respondents under the age of 16 are currently members of a gym of some description. If this age group were taken into consideration they would significantly expand the projected usage of the facility as 78% of respondents under the age of 16 years indicated interest in using the proposed facility.
Total Adult Responses To help ensure accuracy membership projections in this report have been calculated solely based on the responses of people aged 16+ years of age. This gave a total of 351 adult responses from potential fitness gym users.
Current Membership & Concession Card Holders Splash Palace currently has a total active membership of around 11,000 people. Of these approximately 8,000 are adults (including students and seniors). This includes those with valid concession cards as well as those with term based memberships and also includes approximately 2,000 members from outside the immediate catchment area. This means the pool has a total adult membership of around 6,000 people who reside within the Invercargill city boundaries.
3 Some gyms do allow members under the age of 16 years, however due to risk of injury, equipment use is often supervised to some degree and training is given to ensure correct use. This would potentially be possible for younger gym users at the proposed Splash Palace Gym, especially as part of school or community group programmes. However, for the purposes of this investigation regular member projections have been drawn from those 16 years and older.
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Normal Resident Population within Immediate Catchment Statistics NZ 2013 Census data indicates that of Invercargill’s normal resident population of 51,696, 20% of these are under 15 years of age. This gives a total potential gym user population of 41,442 people within the immediate catchment area4.
Population of Focus for Research
For the purposes of projections in this research we have focussed solely on those who currently attend Splash Palace (an estimated 20,500 adults per year). This decision has been made for two reasons.
1. Firstly the population sample who were surveyed, were Splash Palace users or spectators. Application of projections to others may not be representative of the general population.
2. As far as possible Invercargill City Council do not wish to compete directly with existing fitness gyms. For this reason it is proposed that the Pool exclusively offer gym + swim memberships with no option for gym membership or entry on its own.
. Solely offering Gym + Swim entry options will keep the gym membership price higher than existing gyms for people who don’t also swim and help minimise any impact of existing fitness gym providers. Meaning those who are looking solely for gym membership can be referred on to existing facilities.
Margin of Error Using a population of 20,500, sample size of 351 and a confidence level of 95%, this gives a margin of error for the research of +/- 6%.
4 Resident population within the city limits. Statistics NZ 2013 Census Data.
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5.4 Respondent Age Group Breakdown Graph 1 below shows a breakdown of adult survey respondents by age group.
This shows that 31% of respondents would qualify for discounted student / senior membership pricing.
Graph 1: Adult Survey Respondents by Age Group
49, 14%
60, 17%
245, 69%
Student 16+ Adult 60+ Adult
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5.5 Fitness Gym Usage Projections 5.5.1 Survey Response Anticipated Frequency of Use Graph 2 below shows the frequency of anticipated fitness gym use as indicated by adult survey respondents. These results show that the proportion of Splash Palace users who would utilise a fitness gym is much higher than the general New Zealand population.
72% of survey respondents indicated that they would use the proposed gym if available.
Assuming daily and weekly users held a membership of some type this would equate to 53% all adult respondents being a member of the proposed gym.
Graph 2: Percentage of respondents who would use the pool gym daily, weekly, monthly or not at all
35% 32% 30% 28%
25% 21% 19% 20% 15% Percentage 10% 5% 0% Not at all Daily Weekly Monthly Frequency of use
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5.6 Survey Respondent Membership Interest 5.6.1 Survey Respondent Anticipated Membership Uptake Graph 3 below shows the breakdown by gym / swim membership type, that survey respondents indicated they would purchase if available. The most popular options being 12 month membership (28%), x10 visit concession card (24%) and pay on entry single visit (25%).
37% of respondents indicated that they would not purchase a gym / swim membership or pay on entry. This equates to an increase of 9% (or 32 people) over and above those who indicated that they would not use the fitness gym. As the usage question was placed before the membership pricing question; and taking into account that 25% of all pool admissions are non-swimming spectators, it can be assumed that 9% of respondents would rather pay for gym usage separate from their pool entry (i.e. gym + swim was not appealing) or they felt the prices were too high.
9% of respondents would be interested in gym attendance, but would not purchase a gym + swim membership. When applied across all adult pool attendees (20,500) this equates to an additional 1,845 people who would be interested in going to a gym, but would not become members of this one due to the gym + swim membership structure or price point. This supports the theory that the proposed gym would act as a gateway facility for existing fitness gyms.
Nationwide the proportion of residents who are members of a gym is estimated to be between 12% and 20%5.
Graph 3: Gym / Swim membership type that respondents would purchase if available (221 respondents, excluding the 130 who would not purchase a membership)
Single entry 12 months 24% 28%
6 months 8%
X 10 visits 25% 3 months 15% Table 12: Potential Gym / Swim memberships prices offered to survey respondents 12 Months 6 Months 3 Months X10 Visits Single entry Adult $ 850.00 $ 520.00 $ 300.00 $ 135.00 $ 17.00 Student/Senior $ 525.00 $ 320.00 $ 185.00 $ 85.00 $ 12.00
5 Sport NZ, Active NZ survey.
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5.7 Gym Attendance 5.7.1 Current Gym Attendance Graph 4 shows the current gym attendance of survey respondents. A total of 242 (69%) of whom indicated that they were currently not a member of any gym. Of those who were members of an existing gym, most went to either Advance Fitness or World Health & Fitness.
The majority of existing Splash Palace pool users (69%) are not members of existing fitness gyms. 31% of respondents go to an existing gym
Graph 4: Are you currently a member of a fitness gym?
41, 12%
25, 7% Advance Fitness World Health & Fitness 20, 6% Other gym Snap Fitness 11, 3% YMCA 7, 2% Crossfit 5, 1% No
242, 69%
5.7.2 Respondents who don’t go to a gym but would go to this one
66% of survey respondents who don’t currently go to an existing gym would use to the proposed pool gym facility. This supports the theory that they proposed gym would act as a gateway gym and appeal to people who don’t currently attend gyms.
Graph 5: Proportion of people who are not currently members of existing facilities, who would / would not use the proposed pool gym
82, 34%
Would use the pool gym
Would not use it
160, 66%
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5.8 Increased Activity from People New to Gyms 5.8.1 Usage by people not members of existing gyms Graph 6 below shows the anticipated frequency of use as indicated by respondents who are not currently a member of an existing gym.
Of the 351 survey respondents 69% (242) indicated that they are not currently a member of an existing fitness gym. Of those who do not currently go to a gym, 66% (160) indicated that they would use the proposed Fitness Gym at Splash Palace.
Graph 6 : Anticipated Level of Usage by Respondents Not Currently Members of an Existing Gym
90 81 80 72 70 56 60 50 40 32 30 20 10 Numberrespondents of 0 Daily Weekly Monthly Not at all Frequency of use
The gym usage level above equates to an average of 1 hour use per week per person6. Table 11 below extrapolates this finding over the adult Splash Palace users and spectators to give a ball park evaluation of potential new user demand (excluding people who are already members of existing gyms).
Table 12: Projected Usage - new user demand Total 69% who don't 66% who don't got to a Hours usage per go to a gym gym but would go to this week based on 1hr one per person Splash Palace Adults 20,500 14,145 9,336 9,336
Using this estimate, if the proposed gym (182m2) was full 100% of the time (3,465 hours per week), it would only have capacity to cater for around 40% of the potential demand from people who are not using existing gyms.
More conservatively halving the estimated new demand and looking only at realistic capacity (2,210 taking into account peak times) the proposed gym would have capacity for 47% of the potential demand.
This finding supports the theory that a pool based fitness gym would act as a gateway facility. It would appeal to people who are not currently members of other facilities and will not have capacity to cater for all of them.
6 Assuming daily use equates to an average of x3 sessions per week.
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5.9 Impact on Members of Existing Gyms 5.9.1 Impact of proposed Splash Palace fitness gym on members of existing facilities Graph 7 shows the overall impact of a new pool gym on survey respondents who are members of existing gyms (109 respondents).
14% of respondents (15) who go to an existing gym would not use the pool gym. 40% of respondents (44) who go to an existing gym would still going to their existing gym as well as the pool gym, with most indicating they would pay on entry or purchase a 10 visit concession. 46% of respondents (50) who go to an existing gym would change gyms.
Important Note: This finding cannot be extrapolated across all members of existing fitness gyms, as the swim + gym membership offering is primarily appealing to people who already swim.
Graph 7: Impact on Members of existing Gyms
60% 46% 40% 40% 20% 14% 0% No change - I would stay with my Increase - I would still go to my Switch - I would change from my existing gym and not use pool gym existing gym, plus the pool one current gym to the pool gym
5.10 Impact on Existing Gyms The table below show the projected membership of the proposed pool gym facility and applies the proportions found in the survey responses to evaluate the potential membership impact on local gyms. Weightings by membership type are based on survey responses for each category.
Total gym membership for Invercargill is not known, however other reports have estimated this to be between 2,500 and 4,000 members. For the purposes of evaluating impact as a proportion of total membership a figure of 3,000 gym members has been applied.
Table 13: Impact on Existing Gyms Projected Number Proportion who Number Proportion of total Gym + who go to indicated they would switching Invercargill gym Swim an existing switch gyms at each from existing members (based on Members gym 31% membership level gyms 46% a total of 3,000) Term Based Membership (51%) 660 205 79% 162 5.4% x10 Visit Concession Card (26%) 336 104 15% 16 0.5% Pay on Entry / Casual (23%) 298 92 13% 12 0.4% Total estimated loss by existing gyms to pool gym 189 6.3%
It is anticipated that a pool gym with a membership of 660 full members and a similar number of casuals, would mean a collective loss of 189. This is estimated to represent 6.3% of total gym membership across Invercargill.
Note 1: Not all of these members are necessarily full members of existing gyms as type of membership was not included in the survey question. Note 2: This table does not take into account any new members generated (as per section 4.8) for existing gyms via referral, due to excess demand or people wanting gym membership without pool.
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6 Gym Capacity 6.1 Capacity The proposed fitness gym plans allow for 186m2 of gym and multipurpose fitness space. This would be considered small by national standards. Recreation NZ Pool facility development guidelines7 indicate that for new build facilities a 280-300m2 allowance should be made for a fitness gym if it is to be included in new build projects.
When taking into account the potential for a future expansion of 132m2. This would give a total potential gym space of 318m2 and is in line with Recreation NZ Pool facility development guidelines. However, given that one of the stated intentions of the proposed gym is to be a gateway facility and encourage people to progress into existing gyms, it is recommended that (if the project is progressed) the planned 186m2 gym size is built. This will help ensure demand exceeds capacity and achieve this objective.
The current plans (186m2 facility) show a draft layout which includes x25 exercise stations and a open free weights and other activity training space (plus multipurpose room adjacent which may be used during peak times). From this perspective it is anticipated that the facility would have a maximum capacity of around 35 participants at a time.
6.1.1 Maximum Capacity Based on 35 training spaces the proposed gym would have a maximum capacity of 3,465 one hour sessions per week. Due to natural peak times and quiet period this level of utilisation will never be achieved.
Training Week Day Hours Weekend Hrs Maximum # of 1hr Spaces (6am-9pm) 8am - 8pm Sessions Proposed gym (186 m2) 35 75 24 3,465 2 60 75 24 5,940 Expanded gym (318 m ) Table 14: Maximum Capacity
6.1.2 Capacity taking into account peak and off peak times The table below show the capacity of the proposed and expanded gyms taking into account natural variations in usage patterns. Utilisation factors of 80% usage during peak times, 35% during off peak and 60% during weekends have been applied.
Training Week Day Peak Hours Weekday Off Peak Hrs Weekend Hrs Projected # of Spaces (6-9am, 12-2pm, 4-9pm) (9-12pm, 2-4pm) 8am - 8pm 1hr sessions Proposed gym (186 m2) 35 10 5 24 2,210 Expanded gym (318 m2) 60 10 5 24 3,789 Table 15: Capacity taking into account peak and off peak times
The table below show that taking into account peak and quiet period (an average of 62% utilisation) the proposed gym would have a maximum capacity of approximately 675 full members.
Number Average visits per week Training sessions per week Term based members 675 3 2,025 x10 visit concession card members (x2 cards per year) 344 0.38 132 Casual pay on entry (10 visits per year) 304 0.19 59 Total Training Sessions 2,216 Table 16: Capacity taking into account peak and quiet period
7 http://nzrecreation.co.nz/index.php/aquatics/aquatics-guidelines/153-aquatic-facility-guidelines
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6.2 Community Need The provision of fitness and recreation opportunities is closely aligned with the overarching community health and recreation objectives of Council. However, in regard to the impact on existing businesses the core questions are as follows;
1. Will the proposed fitness gym facility service an unmet demand or different market to existing gym providers? 2. Will it be accessible to those parts of the community most in need?
6.2.1 Accessibility / Location Analysis of the current active pool membership by suburb and income distribution shows that the facility is accessible by a wide cross section of the community.
6.2.2 Additional Catchment Existing membership analysis also shows that the catchment for the pool facility is much larger than Invercargill City with 26% of Splash Palace members living outside of the Invercargill City boundaries. This fact is also reflected in comparative popularity of concession cards over monthly memberships at the pool. The proposed gym facility would therefore foreseeably service a much wider population than existing fitness gyms.
6.2.3 Specific Communities of Need Membership analysis showed that Splash Palace already has strong connections with a number of organisations who service specific communities of need. These include organisations such as the Ministry of Social Development, Barnardo’s, Southland Hospital, Rest Homes and a large number of Physio practices. The addition of fitness gym facilities would help to service the rehabilitation and recreation engagement requirements of these higher need sections of the community.
6.2.4 Deprivation / Affordability Less than 9% of adult survey respondents who indicated that they would use the proposed facility, indicated they would not buy a membership. Of these a proportion will be people for whom a swim + gym membership is not appealing, as 25% of pool admissions are for non-swimming spectators. Based on survey results, the proposed gym + swim pricing would be considered affordable.
Table 17 – Extract from Active NZ Survey Results Report 2013/14
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Sport New Zealand’s 2013/14 Active NZ research project8 found that Equipment Based Exercise was ranked as one of the top four forms of recreation for all New Zealanders. For those with the highest degree of deprivation it was ranked third.
This finding indicates that gym based exercise facilities (commercial and/or community based) are a core need for the population as a whole, including those with the lowest incomes.
8 Sport and Active Recreation in the Lives of New Zealand Adults - 2013/14 Active New Zealand Survey Results
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7 Business Case 7.1 Revenue projections The following revenue projections are based on a total of 660 full members. This is considered realistic when consideration is given to projected demand, membership of similar facilities in other New Zealand cities and the anticipated capacity of the proposed gym when taking into account peak times.
The number of people converting from existing pool memberships to gym + swim membership has been calculated based on survey results, which indicated 63% of all respondents would purchase a gym + swim membership of some type. This factor has been applied to term-based pool memberships and 100 visit concession card holders, to give a projected total for term-based gym + swim members.
As it would not make financial sense for someone who does not swim to purchase a membership at a higher rate than they can get from an existing gym, the remainder are anticipated come from concession card holders upgrading to a pool + gym membership. These have been included as lost pool revenue from this category.
The table below shows a projected revenue increase for Splash Palace of $462,416 (including GST).
Number Rate Revenue Changing Swim Fee Lost Swim Total from pool Revenue Additional membership Income to pool + gym Term Based Memberships 475 $850 $403,920 173 $450.00 $77,850 $326,070 Adult Term Based Memberships 185 $525 $97,020 117 $337.50 $39,487 $57,533 Student / Senior x10 visit concession card 239 $135 $64,413 541 $51.00 $24,333 $40,079 Adult (estimated x2 cards per year) x10 Visit Concession Card 93 $85 $15,772 161 $38.30 $7,106 $8,665 Student / Senior (estimated x2 cards per year) Pay on Entry Adult 216 $17 $36,730 216 $6.00 $12,963 $23,767 (estimated 10 visits per year) Pay on Entry Student / 84 $12 $10,083 84 $4.50 $3,781.07 $6,302 Senior (estimated 10 visits per year) $627,939 $165,523 $462,416 Table 18: Projected Revenue
7.2 Expenses Expenses have been retained as projected by the ICC accounting team and pool staff, as per the original report, where they were estimated to be $558,000 in the first year of operation and around $400,000 in subsequent years. Both of these figures include approximately $200,000 for debt servicing.
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7.3 Projections The table below shows the projected revenue and expenses for the first five years.
These projections are based on the projected membership included in this report and the expenses prepared by the ICC accounting and pool management teams.
Given the comparatively small size of the gym, membership is anticipated to fill relatively quickly and hence has been estimated to be at 75% of the projected level in the first year (495 members). The salaries and wages allowance includes and administrative component and takes into account that the pool facility is open 99 hours per week and the fact that the gym will be staffed for a large proportion of that time.
Table 19: Projected Operating Revenue over 5 years Operating Revenue Year 1 Year 2 Year 3 Year 4 Year 5 2016/17 2017/18 2018/19 2019/20 2020/21 Percentage of projected revenue 75% 100% Membership / Entry Revenue $409,525 $546,034 $556,955 $568,094 $579,456 Less Reduced Swim Revenue -$ 107949 -$143,933 -$143,933 -$143,933 -$143,933 Total (Additional) Operating Revenue $301,575 $402,101 $413,022 $424,161 $435,523
Operating Expenditure 2016/17 2017/18 2018/19 2019/20 2020/21 Salaries & Wages $115,000 $117,300 $119,646 $122,039 $124,480 Superannuation $3,450 $3,519 $3,589 $3,661 $3,734 ACC $10,000 $10,200 $10,404 $10,612 $10,824 Staff Uniforms $2,000 $2,040 $2,081 $2,122 $2,165 Staff Training $3,000 $3,060 $3,121 $3,184 $3,247 Marketing $5,000 $5,100 $5,202 $5,306 $5,412 General Expenses $8,000 $8,160 $8,323 $8,490 $8,659 Printing & Stationery $1,000 $1,020 $1,040 $1,061 $1,082 Telecommunications $1,000 $1,020 $1,040 $1,061 $1,082 Cleaning $5,000 $5,100 $5,202 $5,306 $5,412 Equipment Purchase / Lease $200,000 $40,000 $40,000 $40,000 $40,000 Plant Depreciation $4,500 $4,500 $4,500 $4,500 $4,500
Total Operating Expenditure $357,950 $201,019 $204,149 $207,342 $210,599
Debt Servicing $200,000 $200,000 $200,000 $200,000 $200,000
Surplus (Deficit) -$256,374 $1,082 $8,872 $16,818 $24,923 * The figures above are GST exclusive. ** An allowance for 2% inflationary increases in expenses and revenue have been factored in. *** Lost swim revenue has been calculated as of year 2 and consider to be sustained over the following years.
In order for the gym facility to break even in its second year of operation, it would need 653 full members if the $200K debt servicing is included, or 327 full members if excluding debt servicing.
Pre-sale of memberships prior to the gym opening is recommended in order to increase uptake in the first year of operation and ensure the facility is self-sustaining as soon as possible.
The proposed pool gym is projected to cover all its own expenses including its own marketing costs and $200K debt servicing for the redevelopment project by its second year of operation. With a projected loss of $56.5K (excluding debt servicing) in its first year of operation.
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7.4 Redevelopment as a whole The table below shows a breakdown of the overall redevelopment cost by component, as per report prepared by Southern Quantity Surveyors November 2014.
Table 20: Overall Redevelopment Cost by Component Component Value Café and Foyer $177,000 Changing room upgrades $962,000 Gymnasium $795,000 External Works $203,000 Total $2,137,000 Excluding GST Table 19
The café and foyer changes are required in order to optimise the layout of the foyer and allow for staff to transition between these work spaces as required. This will reduce staffing requirements during quiet periods. The changing room upgrades are needed in order to allow for cleaning of facilities throughout the day and give capacity for school and public use simultaneously.
From a rate payer perspective these needed redevelopment inclusions will not generate sufficient savings or additional income to be self-funding or rates neutral on their own. Exclusion of the gym reduces the short term cost of the overall development, but will also increase the long term impact on rates.
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8 Findings & Recommendations 8.1 Findings Summary Important Note: As with any projections these figures have been calculated with the best available information at time of publication and should be evaluated in conjunction with advice from the relevant Invercargill City Council and Venture Southland teams.
The findings of this investigation indicated the following:
1) There is an unmet demand. 2) The proposed gym will act as a gateway facility and will appeal to people who don’t currently go to a gym. a. 72% of all survey respondents 16 years and over indicated that they would use the proposed gym if available. b. 66% of survey respondents who don’t currently go to an existing gym would use to the proposed pool gym facility. c. When looking at a conservative projection of demand from those who do not currently attend a gym, the proposed facility would only have capacity to cater for around 47% of these potential members.
3) The proposed facility will service a wider catchment than existing gyms. d. 26% of Splash Palace’s current membership comes from outside of Invercargill.
4) The proposed facility will assist in meeting the requirements of specific communities of need. e. The number of health and rehab organisations who currently hold memberships with Splash Palace indicates that the pool has strong connections with many providers in this sector. From this perspective they are uniquely placed to provide additional services to this sector.
5) The location can be considered accessible. f. Based on the relatively balanced distribution of Splash Palace’s current membership across the city and over multiple income brackets. The location of the proposed gym can be considered to serve the Invercargill City community as a whole.
6) The proposed facility will have a direct and indirect impact on existing gym facilities. g. The direct impact on existing gyms as a collective is estimated to be a total of 189 members moving to the pool gym from their existing gyms. As a proportion of total gym membership in Invercargill this is estimated to represent 6.3% of total membership across all facilities. h. The indirect benefit of the proposed facility is that research identified that a large number of pool users who do not currently go to a gym, but would be interested in going to the proposed pool gym. The proposed gym will not have capacity to meet the needs of this projected demand. How effectively this excess demand can be translated into membership for existing gyms will largely depend on the partnerships and referral systems developed.
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7) Proposed pricing can be considered fair based on market rates. i. The proposed pricing is deemed to be fair comparative to market rates and would not undercut existing providers. Purchasing a gym + swim membership or concession would only make financial sense for people who already swim.
8) The projected membership can be considered realistic when taking into account demand and capacity of the proposed gym. j. The proposed gym would have a maximum capacity of approximately 675 full members. k. The projected membership is 660 full members.
9) The required number of full members to breakeven is considered achievable. l. In order for the proposed gym facility to break even in its first year of operation (including the purchase of $200K of equipment, but excluding $200K of debt servicing) it would need 588 full members. m. 495 members are anticipated within the first year and a projected loss of $56,500 (excluding debt servicing). n. When taking into account $200K of debt servicing a loss of $256,500 is anticipated for the first year of operation. The only way to avoid this would be to include equipment hire or purchase within the development loan and spread repayments over subsequent years.
o. In order to breakeven in subsequent years (including $200K of debt servicing) the gym would require 620 full members. p. Based on membership of similar facilities around NZ the gym could expect a potential membership of between 637 and 1,395 members.
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8.2 Recommendations 1) As far as possible Invercargill City Council do not wish to compete directly with existing fitness gyms.
It is recommended that Splash Palace exclusively offer gym + swim memberships with no option for gym membership or entry on its own.
It is recommended that, if constructed, the proposed gym is primarily marketed to those who already attend Splash Palace and a clear marketing budget is established within the gyms own operational expenses to minimise any perceived or real financial / promotional advantage over existing facilities.
2) As far as possible the Invercargill City Council wish the proposed facility to be self-sustaining including covering its own setup, establishment, staffing and marketing expenses.
If the facility is built, pre-sale of memberships prior to the gym opening is recommended in order to increase uptake in the first year of operation and ensure the facility is self-sustaining as soon as possible.
3) One of the stated intentions of the proposed gym is to be a gateway facility for people new to gym exercise. In order to achieve this objective:
It is recommended that if the project is progressed, despite an anticipated excess demand, the smaller 186m2 gym size is built as planned. Future proofing of the facility should be taken into consideration. However, the current project should focus on the proposed 186m2 facility in order to ensure financial sustainability and as far as possible utlise insufficient capacity to refer potential clients to existing gyms.
It is recommended that a referral system is established and strong working relationships are developed with existing gyms.
4) If progressed the Invercargill City Council intend the proposed facility, as far as possible, to meet the needs of the community as a whole.
Given the high level of interest in fitness gym use expressed by survey respondents under the age of 16 year, it is recommended that consideration is given to education or fitness programmes that may be appropriate for this age group and could help fill quiet periods during week days.
It is recommended that the pool management team look to develop partnerships with the District Health Board, ACC and other rehabilitation providers, especially those working with the elderly and community members with physical or mental disabilities. Invercargill has an aging population and this will be a growing area of need. These activities will also help to increase utilisation during quieter periods of the day.
5) Splash Palace is part of an overall network of facilities which seek to provide opportunities for the health and wellbeing of the local community.
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It is recommended that, as well as being looked at as a unique component, the proposed gym and Splash Palace redevelopment as a whole is taken into consideration within this wider ecosystem. 6) Current projections indicate a first year loss due to required equipment purchases.
It is recommended that if built, consideration is given to debt funding equipment purchases and spreading the cost of these over subsequent years.
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